We’re not even close to the end of this mess

Reader AJ sent along this link:

Home-Purchase Index in U.S. Plunges to Lowest Level Since 2000

2009-11-12 12:00:00.8 GMT

By Bob Willis
Nov. 12 (Bloomberg) — Mortgage applications to purchase homes in the U.S. plunged last week to the lowest level in almost nine years as Americans waited for the outcome of deliberations to extend a government tax credit.
The Mortgage Bankers Association’s index of applications to buy a house dropped 12 percent in the week ended Nov. 6 to 220.9, the lowest level since Dec. 2000. The group’s refinancing gauge rose 11 percent as interest rates decreased, pushing the overall index up 3.2 percent.
The drop in buying plans points to the risk that the recent stabilization in housing will unravel without government help.
In a bid to sustain the recovery, Congress passed and the administration signed a bill last week to extend jobless benefits and incentives for first-time homebuyers, adding a provision that also made funds available to current owners.
“Uncertainty over the housing tax credit sent some tremors through the market in recent weeks,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “But now that Congress has extended and expanded the credit, we should see demand pick back up.”

AJ writes, and I agree, that we’re watching a market being artificially propped up with taxpayer subsidies. Greenwich isn’t affected by a piddling $8,000 buyer’s credit (so why do the two print columnists in town spend so much ink on them?) but the national figures reflect a Potemkin village, not a real marketplace. If people aren’t applying for mortgages, they aren’t planning to buy a house, all rosy predictions by builders and real estate brokers to the contrary.

We’re closing in on 300 active foreclosures here in town, and I know of many, many financial types, not yet in foreclosure, who are sucking wind, trying to keep up the appearance of solvency so they aren’t wiped out by their peers on Wall Street. Despite what you probably think, traders are not very nice people, and when they smell blood, they strike. So credit cards are being maxed out, late fees accruing, and mortgage payments are not being made. These are not people likely to be rescued by the federal government and so when they go down, they’ll go down hard. Add a couple of hundred more foreclosure properties to the 300 we have already and what do we get? Just about a doubling of our inventory, all of it bank owned and selling for peanuts. That’s not going to help sustain current values and to this Eeyore, presents a compelling argument against holding on til spring to await the market’s return. We should live so long.

4 Comments

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4 responses to “We’re not even close to the end of this mess

  1. Retired IB'er

    Couldn’t agree more with general sentiment, but I would go further. I think the housing market will continue to be manipulated by the Government for the foreseeable future. They will be “forced” , though compelled might be a better word, to continue to subsidize the housing market.

    Specific case in point, I question whether the FED will stop purchasing MBSs at the end of 1st qtr. 2010 as they say they say they will. IMHO the second mortgage rates start to back up (which they will without FED purchases) the FED will blink and be right back in the market full force.

    We are Japan…

    • christopherfountain

      Yeah, IB’r I agree that we’re not stopping buying mortgages come spring. Aren’t we having fun? You want rice with that sushi burger?

  2. Anonymous

    All reasonable points
    But Ponzi schemes (like housing as an investment asset class) can persist for decades
    Massive trade deficits over decades have been financed by ’70s Arab petrodollar recycling into US; ’80s by the Japs; and today by the Chinese: many dimensions of mutually assured socio-economic destruction allow such illusory schemes to persist, whether domestic (like housing prices or union-wage jobs) or global (like trade/currency/tax arbs)

  3. Martha

    Not that I want to be happy for others failures, but (being as we will be buyers June-ish) I can’t help feel a little giddy about this. One of our biggest fears is getting into that “more than you can afford” trap. It seems many people don’t factor in heating/maintenance/etc costs. And, I think those are all big factors in Fairfield county, non? My husband is a Wall Street-er and jobs/bonuses are just not as secure as they used to be.

    Chris, do you have any advice about parts of town that are less prone to “keeping up with the Joneses”? Or, am I simply totally off base in choosing Greenwich for its great schools, nice beach and (relatively) easy commute to Midtown?